David Sharek’s Growth Stock Newsletter Searching for Tomorrow’s Stock Market Winners Today December 3, 2010 The Cheat Sheet Rules the Market I haven’t paid close attention to The again the Cheat Sheet was dead on. n’t gotten hyped up like silver & gold Cheat Sheet since April 2009. At the have. Looking Ahead, the Economy is Rising time I thought the stock market was Internet advertising should be hot, and bottoming. This proved to be correct, Below is an updated Cheat Sheet. The is right up my alley. Baidu.com (BIDU) in retrospect the S&P 500 hit Bear green is where we need to be looking, is the top stock in my Power Rankings. Market lows a month earlier. red is what we need to be selling. The stock is $109 today and I think its The Cheat Sheet has Been Dead On The next stage on the Cheat Sheet is fair value in 2012 is $217. Stock Market is Peaking/Economy is At the time The Cheat Sheet said Fi- Beware of Certain Commodities Rising. Favored sectors include Com- nancials and Penny Stocks were the modities like Metals, Energy compa- Commodities have been hot for years, best investments to make, and this nies (think Oil) and Media outlets such and I wouldn’t want to buy some at also proved to be correct. I put around as Internet Advertising. this point. Take silver, since August 10% of client assets in the Proshares the iShare Silver Trust (SLV) ETF has Ultra Financials (UYG), an ETF that What to Buy Now gone from $19 to $29. Now think does double what the financial sector The Cheat Sheet is telling me com- about that: wouldn’t that have been a does. I bought UYG at $3 that month modities like aluminum and steel good return on silver for a decade? It and it doubled within a year. Unfortu- should do well in 2011. That makes happened in four months. End of runs nately we never got that double, I sold sense because companies growing usually occur after a long move higher at $4 three months after purchase. and need new machines and ware- then a quick run-up at the end. Of course during the market’s crash of houses. Small investors are now invested in 2008 The Cheat Sheet told us to get I try to avoid commodities, since they commodities — this reminds me of all into Food Manufacturers, safe Health- don’t work well within my system of the small investor homeowners who care stocks, and Education — correct. picking stocks. Sophisticated traders bought homes with no money down. Stay a Step Ahead are often sell commodities when I buy, Some commodities are dangerously and I get stuck riding the stocks down. high and could crash like the housing One mistake I’ve made is not looking But I like oil. I’ll look at buying oil and market did. far enough ahead on The Cheat Sheet. oil service stocks, this commodity has- For instance retail has been a huge winner since the 2008 crash, as some retail stocks have tripled since then. Zumiez (ZUMZ) is a clothing store that Stock Market Stock Market Stock Market Stock Market sells clothes for skateboarders. It’s a is Declining is Bottoming is Rising is Peaking (Economy is Peaking) (Economy is Declining) (Economy is Bottoming) (Economy is Rising) little company that had a tough time during the recession, the kids just Consumer Items Financials Autos Commodities Auto Parts National Banks Homebuilders Aluminum wore their old clothes. But ZUMZ had Drugstores Poor Credit Lenders Restaurants Chemicals the combination of being a Penny Food Manufacturers Regional Banks Vacation Stocks Steel Stock (got below $10 a share in April Education REITS Cyclical Stocks Energy For Profit Schools Oil Companies 2009) and a Retailer. The Cheat Sheet Penny Stocks Retail Oil and Gas Drillers liked both. ZUMZ has since tripled in Healthcare Apparel Retailers Drug Companies National Retailers Media price to $30. HMO's Advertising Medical Devices Technology Internet Advertising I remember telling clients in Internet Utilities IT Outsourcing 2008/2009 that Retail would be a Water & Electric Distrib. Computers/Networking huge winner someday. I bought some Software but should have loaded up. Now Retail Telecommunications has been on fire in 2010, and once David Sharek’s Growth Stock Newsletter December 2010 Last Month's Additions and Deletions Changes to the Growth Portfolio Buy Sell Symbol Stock Buy Date Sell Date Gain/Loss There wee no changes made to the Growth Portfolio during Price Price the month of November. Bought None Sold None Current Holding — Deckers (DECK) Last month Deckers (DECK), signed Tom Brady to be its spokesman for UGGs Men’s division, which includes shoes, outerwear and accessories. Before you can say “I’m not going to wear UGGs” consider this: Look at the boots to the right. Which are P/E is Good. for men? Which would you wear? Answer: they are all men’s UGGs. I would wear the one on the right. Its not far-fetched to think Decker’s could have a catalyst in the Above: UGGs account for 90% of Deckers’ sales. works with UGGs for men. DECK knows men’s footwear from selling its Teva line of casual sandals. If it makes a masculine UGG, guys Deckers Outdoor (DECK) P/E: 20 will wear them. Long Term Growth Rate: 25% 90 Annual EPS The negative spin on DECK stock is The Cheat Sheet said to buy the 80 Growth stock when The Stock Market’s Rising/Economy is Bottoming and 2004 0.70 now when you look at the ten-year chart you can see a stock that’s 70 2005 0.81 Stock Price already made a big move. DECK is in the Growth Portfolio, but I am 60 2006 1.08 reluctant to add it to the Aggressive Growth Portfolio because quar- 2007 1.69 50 2008 2.42 terly estimates don’t look great. 40 2009 2.98 Good Earnings Table 2010 3.69e DECK manage- Quarterly Profits Qtrly Annual Profit Est. 30 2011 4.09e Profit a=actual results ment plays a in Earnings Per Share or EPS good game of Grwth 2010 2011 2012 20 1.74 vs. 1.35 = 29% 3.11 3.45 3.24 De Ma Ap A S O 4QtrsAgo c- 0 J an- Feb- Ma J J N y- 1 un- 1 ul -10 ug- 1 ep- 1 c t-10 ov- 1 10 r-10 r-10 underpro- Beat, Met, beat up down 9 10 0 0 0 0 0 Estimates mise/ Missed by 33¢ 9¢ 11¢ Qtrly EPS +29% +48% +156% +24% +11% +15% overdeliver. It . Growth 4QtrsAgo 3QtrsAgo 2QtrsAgo LastQtr NxtQtr 2QtrsOut pleases cur- 3QtrsAgo 0.46 vs. 0.31 = 48% 3.33 3.69 3.74 rent investors Beat, Met, beat down up up Above: Deckers (DECK) one-year chart. when the Missed by 15¢ 4¢ 4¢ 3¢ . company Deckers Outdoor (DECK) Annual EPS 2QtrsAgo 0.23 vs. 0.09 = 156% 3.52 3.95 3.82 beats the Beat, Met, beat same same up 2000 - 2010 Growth street. Missed by 13¢ 1¢ 90 2000 0.24 . 80 I originally purchased 2001 0.12 Bad LastQtr 1.07 vs. 0.86 = 24% 3.69 4.09 4.36 70 DECK for clients on 2002 0.12 The problem is Beat, Met, beat down up up 14¢ 1¢ 1¢ 7¢ 6/11/09 at a spit- 2003 0.26 management Missed by 60 adjusted price of $24. Stock Price is consistently NxtQtrEst 1.93 vs. 1.74 = 11% 2004 0.70 50 Now the stock’s pushing cautious on Up, Same, up up up 2005 0.81 $80 and is very extended future expec- Down by 2¢ 7¢ 6¢ 40 2006 1.08 on the ten-year chart. tations, so . 30 2007 1.69 2QtrsOutEst 0.53 vs. 0.46 = 15% quarterly Up, Same, down up 2008 2.42 estimates for 20 2009 2.98 Down by 1¢ 11¢ the most part . 10 2010 3.69e always look 3QtrsOutEst 0.22 vs. 0.23 = -4% 0 Yearly EPS poor. I think Up, Same, up Ja n- Ja n- Ja n- Ja n- Ja n- Ja n- Ja n- Ja n- Ja n- Ja n- Growth: 31% DECK will Down by 1¢ 01 02 03 04 05 06 07 08 09 10 EPS Yearly Stock continue to . -50% 0% 117% 169% 16% 33% 56% 43% 23% 24% 4QtrsOutEst 1.15 vs. 1.07 = 7% Growth Growth: 47% beat, but when Up, Same, that stops look Down by Above: Deckers (DECK) ten-year chart. out. 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Any review, retransmission, dissemination or use of, or taking action in reliance upon this information by persons or entities other than the intended recipient is prohibited. If you received this letter in error, please contact the sender immediately and disregard. David Sharek’s Growth Stock Newsletter December 2010 What’s Hot/What’s Not Stocks on the Radar — Ancestory.com (ACOM) • Financials are doing really Ancestory.com (ACOM) is a web- Ancestory.com uses profits to But like many stocks in the mar- well, but The Cheat Sheet site that allows people to research purchase other companies with ket now, ACOM has already made doesn’t agree they should their family trees. What gives this data sources, solidifying its lead- a big run. The stock broke out go higher. Last month I mentioned the ProShares company its edge is Ances- ing status as a family historian. September 3, 2010 at $16 and Ultra Financials (UYG) ETF tory.com has billions of records in now its $25. Note in the one-year The Cheat Sheet says we need to “broke out big time” but its database. Ancestory.com has chart that the stock hasn’t cor- since then its gone down overweight Media in the next barriers to entry against competi- rected since then. I’m putting a little. The financials I stage of the cycle Stock Market is tion, unlike Groupon which could ACOM on my radar and will try to like are MasterCard (MA) Peaking/Economy is Rising. be replicated. pick up shares around $25. and Visa (V). MasterCard is in the Growth Portfolio Ancestory.com (ACOM) P/E: 30 Ancestory.com (ACOM) Annual EPS and Visa is in the Core 2000 - 2010 Growth Long Term Growth Rate: 20% Portfolio. People are 40 50 2000 Annual EPS spending and card com- 35 Growth 2001 40 2002 panies make a few cents 2009 0.51 30 2003 off every transaction. 2010 0.75e Stock Price 2004 Stock Price 25 2011 1.00e 30 2005 • Last month, on this page, 20 2006 I mentioned Chinese 20 2007 15 insurance company CNin- 2008 10 2009 0.51 sure (CISG) as a stock I 10 2010 0.75e had on my radar. 5 0 De J an Fe Ma A M J un Ju Au S O Yearly EPS r-1 pr-10 ay- g- 1 ep- 1 c t-1 Nov- c- 09 - 10 b -10 0 10 - 10 l -10 0 0 0 10 Estimates Ja n- 01 Ja n- 02 Ja n- 03 Ja n- 04 Ja n- 05 Ja n- 06 Ja n- 07 Ja n- 08 Ja n- 09 Ja n- 10 Growth: 31% Yesterday CISG got ham- Qtrly EPS +767% -11% +50% +140% +25% +150% EPS 750% 47% Yearly Stock mered on news CNinsure Growth 4QtrsAgo 3QtrsAgo 2QtrsAgo LastQtr NxtQtr 2QtrsOut Growth Growth: 47% was paying its insurance Above: Ancestory.com (ACOM) one-year chart Above: Ancestory.com (ACOM) ten-year chart salesman a portion of their compensation in stock options. This Stocks on the Radar — 7 Days Group (SVN) sounds OK, but the op- tions being granted are not for CISG but for Fi- One of the best stock pickers of In 2009, we went into Stock Mar- I covered Chinese travel stocks in nestart Holdings Limited. our time is Ken Heebner, who ket Rising/Economy is Bottoming last month’s newsletter, but was- It hasn’t been confirmed manages the CGM Focus Fund mode Heebner was big on Ford (F) n’t aware of 7 Days Group (SVN). Finestart is a real com- (CGMFX). Heebner uses a system (Autos) which is up around 65% 7 Days is the third largest econ- pany, as it doesn’t seem similar to mine (high profit growth) this year. omy hotel chain in China, with to be registered as one in but the man has a better grasp on 461 hotels. China or Hong Kong. So Last quarter he bought Price- The Cheat Sheet than I do. For CNinsure might be issuing line.com (PCLN) and Southwest SVN broke out at $13 in August so instance, when the market was options for a fake com- Airlines (LUV) (Vacation stocks) the current $25 price is high. I pany. Additionally, the free-falling in 2008-2009 he which I think he was a little late and would like to buy it but its company might have to loaded up on financial stocks on. Still, I like the fact he still sees gone too-far, too-fast. I’ll put this start paying more cash when most other managers would- the Stock Market Rising — and stock on my radar, and look to buy instead of those options, n’t have had the kahunas to. likes Travel stocks. on a correction. which will hurt profit margins. 7 Days Group (SVN) P/E: 37 7 Days Group (SVN) Annual EPS Long Term Growth Rate: 25% 2000 - 2010 Growth CISG was hot last month, 30 40 2000 now its not. This is the Annual EPS 25 Growth 2001 second Chinese company 2002 2009 -0.23 30 in two months that got 2003 20 2010 0.39e hammered on news its Stock Price 2004 Stock Price 2011 0.61e 15 2005 financials were not in 20 2006 order. In October China 10 2007 New Borun (BORN) went 2008 10 from being on my radar to 5 2009 -0.23 2010 0.39e getting booted off on 0 0 Yearly EPS accounting concerns. At No D J F M Ap Au S O r-1 M ay- J un- J ul -1 v- 0 ec- 0 an- 1 eb-1 ar-1 9 9 0 0 0 0 10 10 0 g- 1 ep- 1 c t-1 0 0 0 Estimates De c- 0 0 De c- 0 1 De c- 0 2 De c- 0 3 De c- 0 4 De c- 0 5 De c- 0 6 De c- 0 7 De c- 0 8 De c- 0 9 Growth: 32% this point Chinese stocks Qtrly EPS N/A +117% +280% +500% +214% +900% EPS 295% Yearly Stock are high risk, right reward. Growth 4QtrsAgo 3QtrsAgo 2QtrsAgo LastQtr NxtQtr 2QtrsOut Growth Growth: 28% Above: 7 Days Group (SVN) one-year chart Above: 7 Days Group (SVN) ten-year chart Growth Portfolio — Power Rankings Power Rankings Rank Trend Symbol Company Comment 1 BIDU Baidu.com The Cheat Sheet says Internet Advertising is set to thrive. Think BIDU not GOOG. 2 AAPL Apple Oddly, Heebner sold most of his AAPL last quarter. I think he's wrong, P/E's only 17. 3 PCLN Priceline.com From $218 to $418 this year, still not overpriced with 24 P/E. Cheat Sheet likes Travel . 4 ESRX Express Scripts Touching an all-time high, but safe Healthcare stocks aren't in now (Cheat Sheet). 5 GMCR Green Mntn Coffee Keurig will be huge this Christmas, and pricey coffee packets will sell in 2011. 6 DECK Deckers Outdoor This stock is red-hot but I'm not buying more, I'll let it ride. 7 CMG Chipotle Restaurants have been hit for a while, as has CMG. Again, let what we have ride. 8 CTSH Cognizant Tech. Solut. IT outsourcing is doing very well, as The Cheat Sheet thought it would. 9 HLF Herbalife Stock seems to go up $1 a week. I just bought HLF at $55 in Aug, now its $70. 10 ROVI Rovi Also seems to go up $1 a week. ROVI's menus power Google Internet TV, Apple TV. 11 MA Mastercard This Financial should do well as its tied to Retail with the economy picking up steam. 12 CTRP Ctrip,com Chinese Internet Vacation site not timely right now, but I like CTRP here. 13 BWLD Buffalo Wild Wings Restaurants are doing great, Buffalo Wild Wings just good. Maybe next year? 14 CHSI Catalyst Hlth Solut. Also touching an all-time high, but safe Healthcare stocks aren't in now (Cheat Sheet). 15 HTHT China Lodging Group I picked the wrong Chinese hotel chain to own, should have had SVN first (its hotter). 16 ISRG Intuitive Surgical Co. still growing, just not at the rate it used to. PE only 26 now though, good value. 17 BPI Bridgepoint Education Education is not in with the economy doing better. Love the numbers with BPI tho. 18 STRA Strayer Education There's going to be a huge cloud over Education stocks for years, I need to sell STRA. DavidSharek.com — Your Internet Portfolio Manager Learn the System, Follow the Portfolio, Own the Stocks David Sharek is Chief Executive Officer and Portfolio Manager of DavidSharek.com (Shareks, LLC) which is registered as an 1. Learn the System by reading Sharek’s new book The School of Hard Stocks. investment advisor with the Securities and Exchange Commission. 2. Follow the Portfolio on davidsharek.com. David believes corporate profits (earnings) ultimately drive the 3. Own the Stocks in one of two ways: a. Follow the changes online and manage your portfolio yourself. prices of individual stocks and developed a system which, he be- b. Have us manage your portfolio & get free access to our Stock Research. lieves, allows him to find tomorrow’s stock market winners today. 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